For outlays related to exclusive use assets, reimbursements may be possible with proper documentation.
Couples seeking marital dissolution in California may hear their family law attorney talk about how to share expenses during the process. Divorcing couples usually each receive a spreadsheet to complete as a record of current household expenses and cash flow. Questions may arise about how to pay ongoing expenses for the spouse who earns less.
If the wife or husband is seeking a temporary support order, they may hear their attorneys mention ways to account for assets used exclusively by one spouse but jointly owned by both. In California cases, payments for such assets may be eligible for “Epstein credits,†referring to a landmark 1979 court case in which such an issue was judged.
The divorce attorney may inform you, the client, of your “right to reimbursement†or “credits†due you as the result of analysis of the marital cash flow statement.
Family law attorney Christina Sherman of San Rafael said basically, if the payments in question don’t directly benefit the payor, and are not made in lieu of the payor’s obligation to support the other spouse or the couple’s children, then the payor can request reimbursement upon separation of community debts and assets.
However, there is a caveat, she said. “People wanting reimbursement for overpayment of their obligations pending the divorce case must declare this intention to the court,†she said. “The court will admit the inventory and accounting of these obligations when reviewing requests for temporary support.
“If people delay this accounting they may not receive full credit due later, when the couple actually splits up their assets as part of the final divorce decree,†she added.
The issue of reimbursement owed to the community property pool arises most frequently over the exclusive use of houses. However, Epstein credits may also be sought for exclusive use of cars or other assets.
There are two other categories of credits that the payor may seek, in these circumstances. Given the confusion about defining eligible expenses, here is a brief explanation, courtesy of Sausalito CPA Keith Stoneking.
Epstein credits: One party uses earnings or separate funds to pay pre-existing community obligations. Refers to 1979 California case, “In the Marriage of Epstein,†24 Cal. 3d 76.
Watts credits: One party has exclusive beneficial use of community property. Refers to 1985 California case, “In the Marriage of Wattsâ€, 171 Cal. App. 3d 373-374.
Jeffries credits: One party has exclusive beneficial use of community property on which money is owed. The other party is making the payments and seeks reimbursements to the community for the payments made. Refers to 1991 California case, “In the Marriage of Jeffriesâ€, 228 Cal. App. 3d 548, 552-553.
Although any divorcing couple may be interested in getting full credit where the parties see credit is due, CPA Stoneking advises caution about the cost. Couples may particularly wish to examine whether the value of the disputed credits outweighs the cost of hiring professionals to do the calculations. A certified divorce financial analyst can prepare calculations for straightforward Watts/Epstein/Jeffries credits. However in the case of complex finances, or when a business is involved, couples may consider engaging a more expensive forensic accountant.
“The person wanting to claim one of the credits needs to look at the whole picture to determine if there is really a significant benefit.,†said Stoneking. “In fact the primary objective of the attorney and financial experts should be keeping the client informed of all the issues and where it is best to spend the money to maximize an equable division of property. â€
The Sausalito CPA defines forensic accounting as a detailed, expert examination of financial records to support an opinion that he/she may have to testify about or that will assist in the parties reaching a settlement.
As a certified divorce financial analyst, I work with attorneys and their clients in inventorying marital assets and debts. The inventory documents can help form a complete dossier backing up your any credits to which you may be entitled. If you are the spouse in possession of an asset talk to your attorney before asserting any exclusive use of community property. You are not obliged to file claim against yourself.
I am happy to help.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
